Private Equity Investment in Farmland

Posted on by Alexander Graham

“Buy land, they’re not making it anymore.” – Mark Twain

Financiers have been investing in farmland for centuries, from the Roman empire being fed by farms in North Africa to American fruit companies buying plantations in Central America.1  Now, nearly 200 private equity firms are expected to have almost $30 billion in private capital invested in farmland globally by 2015,2 and half of all U.S. farmland is being looked at by private equity.3

Agricultural land is seen as a relatively safe investment, especially in the aftermath of the 2008 financial crisis.4 As a tangible commodity, it holds value well against inflation; similar to gold. Unlike gold, however, farmland offers a return on investment beyond cashing out when the value appreciates – farmland also offers the opportunity to generate profits through lease income and crop yields.

Farmland in the U.S. is particularly attractive to investors. The U.S. has some of the world’s most fertile soil, advanced industrial farm technology, strong private property rights, federally insured crop insurance, and the most liberal genetically modified crop regulations in the developed world.5 There is an estimated $10 billion in institutional capital looking for access to U.S. farmland.6 Currently, about 70 percent of all U.S. farmland is owned by people 65 or older.7 As these older farmers retire, there will be opportunity for private equity investors to expand their investment in farmland.8 With so many farmers nearing retirement, it is estimated that 400 million acres of farmland in the U.S. (half of all U.S. farmland) will change ownership over the next decades.9 This presents the potential for a massive transfer of land from farmers to the financial sector.10 Already, half of the farmland in the Midwest is owned by people who don’t farm it themselves.11

It remains to be seen whether massive institutional investment in farmland is a good thing. Most certainly, institutional investment in this particular asset class has the potential to greatly impact the lives of average Americans in a way that other assets or markets do not – everybody has to eat.  The U.S. food industry is already quite consolidated, and consolidated farm ownership could lead to further consolidation of the supply chain.12 Perhaps the biggest worry about the financial sector’s involvement in farming is what the motive is. There is worry that the investments are just speculative, or are too concerned with financial returns and not focused on the production of food.13 While small, family farmers are seen as stewards of the land, there is appropriate apprehension as to whether institutional investors will have a long-term interest in the well-being of the land, or are simply entering the market to leave it a short time later for a profit.

  1. Michael Kugelman, The Global Farmland Rush, The New York Times (Feb. 5, 2013), http://www.nytimes.com/2013/02/06/opinion/the-global-farmland-rush.html. ↩

  2. Michael Kugelman, The Global Farmland Rush, The New York Times (Feb. 5, 2013), http://www.nytimes.com/2013/02/06/opinion/the-global-farmland-rush.html. ↩

  3. Carey L. Biron, Half of U.S. Farmland Being Eyed by Private Equity, Inter Press Service (Feb. 19, 2014), http://www.ipsnews.net/2014/02/half-u-s-farmland-eyed-private-equity/. ↩

  4. Carey L. Biron, Half of U.S. Farmland Being Eyed by Private Equity, Inter Press Service (Feb. 19, 2014), http://www.ipsnews.net/2014/02/half-u-s-farmland-eyed-private-equity/. ↩

  5. The Oakland Institute, Down On The Farm 4 (2014). ↩

  6. The Oakland Institute, Down On The Farm 3 (2014). ↩

  7. Carey L. Biron, Half of U.S. Farmland Being Eyed by Private Equity, Inter Press Service (Feb. 19, 2014), http://www.ipsnews.net/2014/02/half-u-s-farmland-eyed-private-equity/. ↩

  8. The Oakland Institute, Down On The Farm 9 (2014). ↩

  9. Carey L. Biron, Half of U.S. Farmland Being Eyed by Private Equity, Inter Press Service (Feb. 19, 2014), http://www.ipsnews.net/2014/02/half-u-s-farmland-eyed-private-equity/. ↩

  10. The Oakland Institute, Down On The Farm 10 (2014). ↩

  11. The Oakland Institute, Betting On World Agriculture: US Private Equity Managers Eye Agricultural Returns 9 (2012). ↩

  12. Carey L. Biron, Half of U.S. Farmland Being Eyed by Private Equity, Inter Press Service (Feb. 19, 2014), http://www.ipsnews.net/2014/02/half-u-s-farmland-eyed-private-equity/. ↩

  13. Carey L. Biron, Half of U.S. Farmland Being Eyed by Private Equity, Inter Press Service (Feb. 19, 2014), http://www.ipsnews.net/2014/02/half-u-s-farmland-eyed-private-equity/  ↩

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